“Chaos often breeds life, when order breeds habit.”
-Henry B. Adams
Recently my wife and I closed on a new home in Greenwich, CT. Each day that we waited for mortgage approval seemed to open with yet another front-page article about well-off home-buyers turned down for a loan. We were relieved when our approval finally came through.
But we were elated to learn we locked in a rate far below the market. Indeed it seemed that mortgage companies were raising rates across the board, our lender’s rates remained unmoved. How could this be?
On the surface Hudson City Savings Bank seems unremarkable. It is one of about 50 large thrifts in the U.S., the largest headquartered in New Jersey, with 123 branches in the New York metropolitan area. But look beyond the basic numbers and the comparison between the bank and its peers falls apart. Hudson City Savings Bank is thoroughly outperforming its competition.
Consider the facts:
•While most banks’ earnings are shrinking, Hudson’s is growing (earnings per share grew by 57% this quarter)
•While other banks’ interest margins are under pressure, Hudson’s is expanding
•While other banks are scrambling for new (mostly foreign) investors, Hudson is doing the opposite: giving more back to shareholders by increasing dividends
•They’ve grown deposits 18% in the past six months
•And overall profits this quarter are nearly 50% higher than they were last year
What is Hudson City Savings Bank doing that other banks are not? What if you did the same thing in your industry?
Hudson is implementing a strategy, known by the ancient Chinese phrase, “loot a burning house.” The CEO explains he is able to “take advantage of the market turmoil” because his competitors are acting like sheep – just as yours probably are.
Detach from the market
While other banks are being squeezed by erratic market swings, constantly changing their borrowing and lending rates, Hudson rests unaffected. The bank does not sell its mortgages on the open market so they are not attached to what the open market says rates should be. Nor does the bank borrow on the open market. Instead it funds its mortgage loans almost exclusively with deposits from its banking customers. As a result it can wait calmly during capital market turmoil.
Ignore industry practices
Credit scores might be the industry standard when evaluating borrowers for a mortgage, but incredibly, Hudson City loan officers largely ignore them. Instead they look at factors more meaningful to them, such as how likely a borrower is to soon resell a property (“flip” it).
Grow around the competition
You would think New York City is where the big money is. But Hudson has stuck diligently to its policy of growing around Manhattan, avoiding the fray of all the other banks that invariably want to move into the big city.
Loot a burning house
By stepping away from the pack, Hudson has positioned itself perfectly to take advantage of its competitors’ troubles. It can lend at a time when its peers are capital constrained. Hudson’s unique screening ability allows it to identify low risk borrowers where its competitors cannot. Hudson, in effect, is able to pull jewels out of the burning house while its competitors run away in despair.
The 36 Stratagems calls this strategy “Loot a burning house: When the enemy falls into severe crisis, exploit his adversity and attack by direct confrontation. This is the strong defeating the weak.”
Businesses that consistently seize on others’ misfortunes build power. They act like water, exerting pressure on all surfaces, so that the moment an opening appears they are already advancing. A key element of this approach is the willingness to see opportunity where others see trouble. I say “willingness” and not “skill” because if you study companies that have done this well – Coca-Cola, Kiwi Airlines, Thor Industries – you will see that the truth was obvious. The opportunity was clear to everyone. What prevents others from seizing it is not that they could not see it but because they could not shake off the social and market pressure to retreat.
Apply this strategy to unlock the opportunity this stratagem represents for you and your business, ask three questions:
1.From where are your competitors pulling back? What are they no longer doing?
2.If you knew you could afford to lose money, if your capital base was comfortably secure and you were not worried, what opportunity would you seize?
3.If you had just jumped into this game, having never been bitten, what opportunity would you seize?